Cnooc Lawyer Is Sanctioned

James Areddy and Brian Spegele broke the news that China National Offshore Oil Corp. had sanctioned one of its top lawyers for conflicts of interest involving Baker & McKenzie.

The article as it appeared on Dow Jones:

03:45 HKT: Cnooc Lawyer Is Sanctioned

By James T. Areddy and Brian Spegele

SHANGHAI — The Chinese energy company China National Offshore Oil Corp. said it sanctioned one of its top lawyers for conflicts of interest with Baker & McKenzie, a U.S. law firm that has often represented it and that in Beijing is led by the woman’s husband.

In an email sent Monday to at least two major international law firms amid widespread industry talk about the relationship, Cnooc said it found that Karen Kang Xin violated unspecified national regulations and its corporate policies by accepting trips to Europe and Australia paid for by Baker, and that she subsequently helped the law firm win legal work. The note, which was reviewed by The Wall Street Journal, said Ms. Kang dated and then married Baker’s chief representative in Beijing, Stanley Jia Dianan, “and did not withdraw from the conflict of interest after the marriage.”

Ms. “Kang’s behavior shows apparent biased intentions and lasted for long time,” wrote Cnooc’s chief legal officer Zhao Liguo in his note to the law firms. It is unclear what prompted Mr. Zhao’s email.

By citing the U.S. law firm by name in its allegations, Cnooc’s letter adds an international dimension to corruption investigations in China’s oil industry that have rocked the sector for more than year. Led by Communist Party investigators, China’s government has been auditing state-owned companies for malfeasance. That has prompted several, including Cnooc, to issue public statements pledging to address internal problems.

Baker’s Mr. Jia is one the primary architects of legal strategies helping major Chinese state companies expand into overseas countries with big acquisitions in recent years, according to other lawyers and company statements. An authority of China’s outbound investment, he became Baker’s chief representative in Beijing in late 2011, a year or so after helping Cnooc transform itself into a global competitor by gaining a foothold in Latin America.

Efforts by the Journal over the past week to interview Ms. Kang and Mr. Jia have been unsuccessful. In a brief telephone conversation Nov. 11, Mr. Jia told the Journal to call Baker’s public-relations office and hung up.

In response to questions Monday, Baker said in a written statement that it “has strict rules and guidelines about professional conduct. Based on all of the information we have reviewed, we have not identified any breach of any professional rules or internal Baker & McKenzie rules by our attorneys or employees in this matter.”

Cnooc and its public-relations agency didn’t respond to requests to comment about Baker and Ms. Kang.

In Monday’s note sent to the law firms in Chinese from his email account, Mr. Zhao, Cnooc’s chief legal officer, said he “terminated” the oil company’s relationship with Baker in March 2013, about two months before Cnooc began a formal investigation of Ms. Kang that Mr. Zhao said led to her demotion. Ms. Kang’s current employment status wasn’t made clear in the note, nor did it say when the alleged trips Baker paid for occurred.

Several lawyers unconnected with the issue said the allegations Baker benefited from the personal relationship between Mr. Jia and Ms. Kang are potentially problematic for the legal partnership because American law bars U.S. firms from giving financial incentives to foreign government officials, including executives of state-run companies like Cnooc.

People who know Ms. Kang and Mr. Jia, both born in China, said that they were married in the past few years after his first marriage broke apart but that they have known each other longer.

Ms. Kang’s corporate biography with Cnooc says she was born in 1974. Mr. Jia is older, graduating from a Guangzhou college in 1984 before studying at New York University and then law at University of California at Berkeley. Ms. Kang also attended Berkeley’s law school.

Baker’s website cites Mr. Jia’s “extensive experience” in China, working on foreign investment projects including in the energy and automotive sectors.

Ms. Kang, who joined a Cnooc legal team in 1997, rose quickly in the company. By 2007, she served as the corporate secretary of its listed arm Cnooc Ltd. under its then-chairman Fu Chengyu, a famed Chinese oilman. In 2009, she was made general manager for legal affairs at the group, with particular responsibility for the international business at a time when Cnooc was charging overseas.

According to people who have worked with Mr. Jia, he gained credibility within China’s state-owned enterprise sector for leading the Baker legal team in work on a complex pipeline system that starting in 2003 began to deliver gas to Shanghai from the remote province of Xinjiang, 4,000 kilometers to the west.

Later, his Cnooc work helped solidify Baker’s reputation for taking China global. Mr. Jia was the co-lead in advising Cnooc in early 2010 on a $3.1 billion investment into Argentina’s Bridas Energy Holdings Ltd. that marked the Chinese oil group’s biggest foreign investment at the time and its first step into Latin America. In a Baker news release at the time, Mr. Jia and another lawyer at the firm were quoted as describing Cnooc as a “longstanding client.”

Later in 2010, Baker co-advised Bridas when it agreed to pay about $7 billion for Pan American Energy LLC. Those deals won Baker industry recognition, and according to a tally by research firm Mergermarket, Baker in 2010 was the 13th most-active adviser for mergers and acquisitions in Latin America by deal value, up from 64th the previous year.

In the email he sent Monday to the law firms, Cnooc’s Mr. Zhao mentioned reputational damage to the company from the alleged conflict, and he accepted some blame. “It not only impairs the reputation of Cnooc, but also brings trouble and confusion to many law firms including yours, damaging our good relationship,” he said.

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